Tips for MSBs and Fintechs on securing a banking relationship

It might sound counter-intuitive, but banks are crucial elements in the business models of financial technology (fintech) companies and money services businesses (MSBs). They can serve as key partners in helping you achieve your goals such as facilitating the movement of funds, securing credit facilities for your business, and collaborating with you on your technology-driven initiatives.

It follows that you, as a fintech or MSB (both online/digital and brick and mortar), need to stay in your banks’ good books. Which means making sure your business meets the bank’s minimum requirements for anti-money laundering (AML) compliance and the expectations of Canada’s AML regulator, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

Here are the top seven ways how.

Make sure you are compliant

Canadian AML regulations have tightened as part of a concerted move to stop criminals and terrorists from accessing or moving money, making an AML program mandatory for any business that:

• performs foreign exchange dealings
• deals in virtual currency
• does money transfers
• issues or redeems money orders, traveler checks, or anything similar.

If you carry out any of the above, you are considered a reporting entity under the Canadian Proceeds of Crime (Money Laundering) and Terrorist Financing Act. As such, you must register with FINTRAC.

The most important step to securing a banking relationship is registering with FINTRAC and making sure an AML program is in place, documented and implemented.

Develop an AML program

Having an AML program in place is non-negotiable when working with a financial institution such as a bank or credit union due to federal and provincial regulatory expectations as well as the risks associated with any business that facilitates the movement of funds.

 To meet the five pillars of a FINTRAC compliance, or AML, program you must:

1. Appoint a compliance officer responsible for the implementation and oversight of the compliance program
2. Develop and apply written compliance policies and procedures that are kept up to date and approved by a senior officer
3. Apply and document a risk assessment, including mitigation measures and strategies
4. Develop and maintain a written training program for employees, agents, and others authorized to act on your behalf
5. Review your compliance program every two years for the purpose of testing its effectiveness

Be transparent

If you want to maintain or establish a good relationship with a financial institution, start from the premise that it may already see you as a high-risk venture. Hence it is important to be transparent: to cover any liability, the bank or credit union will want to know everything about your business, including your business model, beneficial ownership, prospective clients and jurisdictions or countries you intend to send or receive funds from. Having a flow of funds chart in place that shows the end to end process of a remittance transactions as well as sender and beneficiary types, can be very beneficial.

Know your business model

Your business model should be easily understandable, including the end-to-end settlement or flow of funds model and the role the financial institution will play in facilitating the movement of funds. It is also crucial to let the financial institution know if you have other entities such as MSBs, affiliates (foreign or domestic) and payment service providers for an appropriate risk assessment consideration by them.

Know your geographic risk exposures

As a fintech or MSB likely to send or receive instructions to transfer funds internationally, you need to be acutely aware of which countries are considered high risk by your financial institution or countries sanctioned by Canada and other countries. If your financial institution does not conduct transactions or business with certain jurisdictions, you need to be aware of this and ensure it does not impact your business.

Plan for compliance monitoring

Having a plan on how you will monitor relationships, transactions, and screen for adverse media and sanctions is also crucial to the way a financial institution will assess the risks associated with establishing and maintaining a business relationship with you.

Stay up to date

Are you aware of and compliant with the most up-to date version of FINTRAC’s Guidelines and the Canadian AML legislation? Canada has made significant amendments to the AML legislation since late 2019 and these updates are expected to be implemented in relevant sections of an AML Program.

Make sure your AML program is set up by an experienced and reputable AML professional to ensure full compliance with the PCMLTFA – your financial institution will be demand evidence you are fully compliant.

For more information on AML compliance and regulatory expectations, contact Mondiu Jaiyesimi, CAMS, FIS, CBP, at 416.838.7993 or [email protected]